Can you get a 100% commercial mortgage?

How to apply for a commercial mortgage

Do you want to buy a property for commercial use but don’t have a deposit to contribute to a mortgage? You may be able to take advantage of a 100% commercial mortgage.

What is a 100% commercial mortgage?

A commercial mortgage can be used to buy or refinance a commercial property, refurbish your business premises, develop a property or release capital for your business. It’s a secured loan that can be applied to commercial and mixed-use properties and land. There are two types of commercial mortgages:

  • An owner-occupied commercial mortgage. This is used to buy your business premises.
  • A commercial investment mortgage. This is used to buy an investment property that you wish to rent out.

Generally, lenders offer a loan-to-value (LTV) ratio of up to 65% for a commercial investment property and up to 75% for an owner-occupied property. However, some specialist lenders provide 100% funding if you don’t have a deposit to put down. Lenders consider 100% commercial mortgages to be very high risk so you’ll need to provide additional security and pay a higher interest rate to benefit from this.

What security do you have to provide?

To reduce the risk for commercial mortgage lenders, additional security has to be provided when applying for 100% financing. This is usually a property with adequate equity in it to cover an amount that’s equivalent to a deposit. You can either use a different commercial property to the one you require funding for or your home. Just bear in mind the risk involved if using your home as additional security.

Some specialist lenders consider business assets aside from commercial property. For example, a car or equipment used for your business in Bexley. They tend to lend up to a percentage of the asset’s value and often only consider assets up to a maximum age.

Another option is to have a guarantor. They’ll need to prove their affordability for the loan. However, should you fail to make the repayments, they’ll be legally liable to do so. This means that by agreeing to act as your guarantor, they are taking on a lot of financial risk.

The interest and fees payable

As 100% commercial mortgage financing is a higher risk than standard commercial mortgages, the interest rates charged are higher. Specialist commercial mortgage lenders carry out risk assessments based on individual cases so your rate will be determined by the strength of your application.

Provide as much information as you can to reassure the lender that you pose less of a risk. That way, you’ll be able to secure a lower interest rate. For example, provide details of your experience within the industry, projections for the profitability of your business and an in-depth marketing strategy.

As well as the interest, there are additional costs to budget for when applying for a 100% LTV commercial mortgage. These include:

  • An arrangement fee
  • A valuation fee
  • Legal fees
  • Insurance costs

Eligibility criteria for a 100% commercial mortgage

To be considered for a 100% commercial mortgage, lenders have other criteria that need to be met aside from the security you can provide. These include:

  • Your credit rating. The better your credit rating, the more likely a lender will be to approve your 100% commercial mortgage application. Don’t worry if you have a poor credit rating, though. We deal with specialist lenders who offer flexibility when it comes to an adverse credit history.
  • How profitable your business is. The lender will use this to determine your affordability of the loan. It’s an advantage to have a consistent track record when it comes to the profitability of your business. This is because your commercial mortgage is likely to span a long term. You need to have a strong business plan and the lender will check your earnings before interest, tax, depreciation and amortisation (EBITDA).
  • Your business experience. The more experienced you are in your industry, the less of a risk you pose for the lender.
  • The stability of your business. The lender will want to know how long you’ve been in business for, the demand for the services or products offered and the industry that your business is in. For example, if your business operates in the medical industry, it poses less of a risk to lenders than a business in the hospitality industry.

We can arrange your 100% commercial mortgage

At Trinity Finance, we have formed good relationships with specialist lenders offering niche mortgages. To discuss your eligibility for a 100% commercial mortgage, just give us a call on 01322 907 000. Our commercial mortgage brokers will be on hand throughout the application process. They will negotiate the best rate and terms on your behalf to ensure that you benefit from the best commercial mortgage deal.